During the month, and indeed the past 40 odd days, we have seen a very low level of volatility in equity markets. This has partly been due to the North American holidays and a fairly quiet time in Europe and Japan. This saw a fairly quiet month with most markets holding onto the previous strong gains.
On Friday night however, comments from the Federal Reserve warning about the consequences of leaving rate rises too long (known as “hawkish comments”) saw global markets have their worst day for some time. This is illustrated by the chart below showing the size of daily movements in the US market.
This in turn has seen a pretty horrid day today in our markets, in fact the worst since Brexit. A pick up in volatility could well be on the cards throughout September, given the large amount of economic news that is set to be released.
During August, we have had our domestic reporting season, with the overall report card being considered ‘ok’ without being great. Last year it was the resources companies that disappointed but this year it was the banks and some of the industrials. Goldman Sachs pointed out that less than 20% of companies beat analyst expectations, whereas it’s usually more like 35%. Importantly, we gained an insight to future earnings forecasts, which look pretty good. However, this has been the case for a few years where initial forecasts look good and are then revised downwards as the year unfolds. Worth noting is that 86% of companies increased or maintained their dividends, indicating that corporations are doing ok.
